What's a good price to get into a stock that has rallied, like Apple or Nvidia?

Published Sun, Oct 29 202310:34 AM EDTUpdated Mon, Oct 30 20233:19 PM EDT

Here's our Club Mailbag email investingclubmailbag@cnbc.com — so you send your questions directly to Jim Cramer and his team of analysts. We can't offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week's question: What's a good price to get into a stock that has moved up a lot? I want to get positions in NVDA and AAPL, but they have moved up so much already I am not sure the right price. — Ron The first thing to understand is that price is what you pay, value is what you get. For example, what's the better value: ABC stock at $100 or XYZ stock at $50? That's impossible to answer without considering the earnings for each company. If ABC generated earnings per share of $4 and XYZ has earnings of $1 per share, then ABC is actually the better value despite the higher price. ABC trades at 25 times earnings, while XYZ trades at 50 times earnings. So you want to focus on the valuation. That's how you filter out the recent price swings (up or down) and stay focused on whether the price is right for the asset you are considering. Consider what happened this year to Nvidia (NVDA) this year. Despite a huge rally, shares of NVDA actually became cheaper based on forward estimates. That's because the earnings estimates went up more than the stock price, resulting in the multiple decreasing. If you only focused on the increase in stock price, you missed the more important point: The stock was actually a better value after the rally. Valuation alone isn't going to determine the price action over a short time frame. Prices can go down as profit takers who are focused more on their recent win than the valuation sell some shares. That's why we like to buy a little bit at a time when the stock dips to lower our overall cost basis. If the stock doesn't dip after your first buy, we call that a high-quality problem. Not violating basis is our discipline, but in certain situations we have done so. Whether that's the right move is one every investor must determine for themselves. We offered some thoughts on this here that should help make that decision. You can determine these levels based on valuation metrics like the price-to-earnings multiple or dividend yield to ensure you're making every buy count. You also can implement some technical analysis. We consider ourselves fundamental analysts rather than technicians, so we're much more concerned with setting those price levels using valuation. Here are ways to do some simple technical analysis . For example, one might buy stock XYZ at 22x earnings. From there you might determine that the next level is whatever sees the stock trade at 18x earnings, which is calculated by simply taking the earnings estimate and multiplying by 18. How you determine the right level is up to you, but some factors you may consider are the market multiple, the growth rate, the historic level at which shares have traded in the past, and the multiple placed on peers in the industry. We can't offer up individual investing advice about when or at what level to buy Nvidia and Apple (AAPL). But these are the only two names in the portfolio that we have given the designation of "own it, don't trade it," so we know members are trying to pick their spots. In addition to conducting your own analysis, be sure to keep an eye on our alerts. Last week, we said we would have bought more Meta Platforms (META) shares had our Club trading rules allowed us to. Meta reported a solid quarter but the stock got punished. Shares are trading at a lower forward earnings multiple now than in April: 17.6 times currently versus 19.3 times then. The stock price, however, is higher now than it was in April. So it's a similar dynamic to Nvidia — better value. With earnings season continuing, we will certainly be providing more thoughts on what members should think about going into the prints and after the releases and conference calls. (See here for a full list of the stocks INJim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

This week's question: What's a good price to get into a stock that has moved up a lot? I want to get positions in NVDA and AAPL, but they have moved up so much already I am not sure the right price. — Ron